In Russia, Don't Tie US Aid to Privatization

Article excerpt

AS the bombs fall indiscriminately on Chechnya, some members of Congress are asking the right question for the wrong reasons.

Yes, the wisdom of continuing aid to the Yeltsin regime should be questioned, but not only because of violations of human rights by the Russian Army in the Chechnyan war. Rather, Congress should take an all-encompassing look at the priorities and goals of US aid to Russia and other former Soviet republics. As five years of aid experience has shown in Eastern Europe, there is considerable potential for the aid to backfire, be misused, or be unwisely implemented. Already the signs of these problems are being seen in Russia. This should serve as a wake-up call to Congress to conduct a top-to-bottom assessment of US assistance to the region.

The privatization of the large state-owned socialist company has been the single most important priority of the major Western donors, particularly the United States. Donors have looked to privatization as a way to measure progress in the transition from communism to a market economy. Because the socialist enterprise that provided jobs, housing, medical, and day care symbolized the socialist workers' state, the breakup of the enterprise has come to symbolize transition. Yet it is very difficult to give effective and neutral aid in a politicized arena.

Privatization aid can be effective only if it can accomplish something that businesses in the recipient country cannot accomplish themselves.

Outside consultants can assist in structuring privatization efforts by helping to develop all-important legal and administrative frameworks for business transactions, such as laws to protect private property. But in a highly politicized arena with disincentives to quick privatization, the conversion of state-owned enterprises can hardly be accelerated simply by bringing in outside consultants or by hiring public relations firms to promote privatization.

In Russia, a "public education" campaign that began with television spots explaining to the general public what a business share is (and what to do with the shares citizens received from the government) turned into a mission to convince citizens of the benefits of privatization.

The US Agency for International Development (AID) paid a Western public relations firm to produce the campaign. The firm ran into trouble when it sought to find and publicize "success story profiles" of privatized state-owned enterprises. In many cases, employees didn't know whether their enterprises had been privatized and had difficulty identifying any real changes brought about by privatization. As a Moscow representative of the PR firm put it, "We scoured the country and found 25 success stories." Yet, on paper at least, there are hundreds of privatization efforts under way.

From a cost-benefit point of view, many privatization efforts are a waste of resources. According to a project evaluation commissioned by AID, of five large Central and East European firms assisted by AID-paid consultants, only one has been privatized and not as a result of AID help. Large enterprises tend to be more burdened by national political agendas than medium or small ones. …